Thread by @bensig

Full transcript of @GaryGensler from the Aspen Security Forum. Just hearing the SEC chair mention Satoshi Nakamoto gives me some joy. #Bitcoin sec.gov/news/public-st…

He gives Nakamoto a shoutout and although he gives some credit towards bitcoin and crypto, he also warns about the dangers. Let's look at some excepts:

"Nakamoto had solved two riddles that had dogged these cryptographers and other technology experts for a couple of decades: first, how to move something of value on the internet without a central intermediary; and relatedly, how to prevent the 'double-spending'"

"Based upon Nakamoto’s innovation, about a dozen years later, the crypto asset class has ballooned. As of Monday, this asset class purportedly is worth about $1.6 trillion, with 77 tokens worth at least $1 billion each and 1,600 with at least a $1 million market capitalization."

"Before starting at the SEC, I had the honor of researching, writing, and teaching about the intersection of finance and technology at the Massachusetts Institute of Technology. This included courses on crypto finance, blockchain technology, and money."

"In that work, I came to believe that, though there was a lot of hype masquerading as reality in the crypto field, Nakamoto’s innovation is real. Further, it has been and could continue to be a catalyst for change in the fields of finance and money."

The blockchain movement is full of idealists, dreamers, hodlers, and buidlers. Of course, there is a lot of hype - but there is a lot of truth to the digitalization / dematerialization of money using blockchain.

"At its core, Nakamoto was trying to create a private form of money with no central intermediary, such as a central bank or commercial banks.

We already live in an age of digital public monies — the dollar, euro, sterling, yen, yuan."

🥱

"Such public fiat monies fulfill the 3 functions of money: a store of value, unit of account, and medium of exchange. No single crypto asset, though, broadly fulfills all the functions of money. Primarily, crypto assets provide digital, scarce vehicles for speculative investments

Now onto the good part:

"The SEC has a three-part mission — to protect investors, facilitate capital formation, and maintain fair, orderly, and efficient markets in between them. We focus on financial stability as well. But at our core, we’re about investor protection."

"Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West."

Meanwhile, the stock market has also become the Wild West. Fundamentals are totally out the window. It's making my father crazy. #wallstreetbets But go on...

"This asset class is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced, and complete information."

...and the explosion of SPVs are not ripe with fraud at all... and somehow it's not fraud that only the richest investors and wall street insiders are able to invest in pre-IPO shares while the rest of the population must "be protected" - 👌

"You see, generally, folks buying these tokens are anticipating profits... many tokens may be unregistered securities, without required disclosures or market oversight. This leaves prices open to manipulation. This leaves investors vulnerable."

Translation: You need us to protect you. It doesn't matter if you want us to protect you or not. The SEC is a 3 letter agency of kings - they do not have to answer to voters directly, they are rulers without accountability to the people they rule.

Of course we saw this coming:

"Next, I’d like to discuss crypto trading platforms, lending platforms, and other “decentralized finance” (DeFi) platforms."

"...unlike other trading markets, where investors go through an intermediary like the New York Stock Exchange, people can trade on crypto trading platforms without a broker — 24 hours a day, 7 days a week, from around the globe."

Being open 24/7 is seen by the SEC as a negative?

"The American public is buying, selling, and lending crypto on these trading, lending, and DeFi platforms, and there are significant gaps in investor protection."

"Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption.

Make no mistake: If a lending platform is offering securities, it also falls into SEC jurisdiction."

🤔 wondering if the SEC will make this easier for crypto companies around the world. Perhaps develop a special reg STO - for a security token offering that can be completed quickly and easily instead of forcing people into Reg A, D, S, etc...

"Many of you have heard about Facebook’s efforts to stand up a stablecoin called Diem (formerly known as Libra)."

🧃juicyyyyy

"In July, nearly three-quarters of trading on all crypto trading platforms occurred between a stablecoin and some other token." 🍿

"Thus, the use of stablecoins on these platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like. This affects our national security...

Translation: Stablecoins are now a threat to national security. 👀 @circlepay @CelsiusNetwork

"Next, I want to turn to investment vehicles providing exposure to crypto assets. Such investment vehicles already exist, with the largest among them having been around for eight years and worth more than $20 billion."

"I anticipate that there will be filings with regard to exchange-traded funds (ETFs) under the Investment Company Act (’40 Act). When combined with the other federal securities laws, the ’40 Act provides significant investor protections."

When #Bitcoin ETF?
If there are more regulated options to invest in crypto, less people will use the unregulated markets.

"There are some gaps in this space, though: We need additional Congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector."

Translation: "give us more money"

I cannot even imagine a 3 letter agency saying "well, looks like we can start to downsize and we will not need as much funding moving forward..." 👺

"In my view, the legislative priority should center on crypto trading, lending, and DeFi platforms. Regulators would benefit from additional plenary authority to write rules for and attach guardrails to crypto trading and lending."

Are these "guardrails" meant to protect banks or investors???

"At the heart of finance is trust. And at the heart of trust in markets is investor protection. If this field is going to continue, or reach any of its potential to be a catalyst for change, we better bring it into public policy frameworks."

While "trust" is the strongest word in banking. "Trustless" is the strongest word in blockchain. Famously, #Bitcoin is "rules without rulers" and the SEC is in many ways - the ruler of securities.

Is it just me or does it really seem like the SEC is trying to protect banks instead of protecting investors??